United Kingdom: Economy
The United Kingdom has the seventh-largest economy in the world, has the second-largest economy in the European Union, and is a major international trading power. A highly developed, diversified, market-based economy with extensive social welfare services provides most residents with a high standard of living.
The United Kingdom’s economy continues to recover from turmoil in the financial markets. It entered a recession in the third quarter of 2008 and exited recession in the fourth quarter of 2009. Growth since then has been patchy, held back by weak credit growth, a contraction in real incomes, and the poor economic outlook in the U.K.’s major trading partners. The U.K. economy contracted on a quarterly basis in the final quarter of 2010 and the final quarter of 2011. In response to the financial crisis, the British Government implemented a wide-ranging stability and recovery plan that included a fiscal stimulus package, bank recapitalization, and credit stimulus schemes. Extraordinary monetary policy measures, including very low interest rates (0.5%) and a quantitative easing program (£325 billion), remain in place. Despite this, domestic demand remains weak and unemployment has yet to return to pre-recession levels, standing at 8.4% in November 2011. The Conservative-Liberal Democrat coalition government that took power in May 2010 initiated a planned 5-year austerity program, which aims to lower the U.K.’s budget deficit from over 11% of GDP in 2010 to near 1% by 2015. Poorer than expected growth has meant that the coalition’s budget deficit plans will now only be met in 2016/17.
As a leading international financial center, London was severely impacted by the financial crisis in 2008. U.K. banks laid off thousands of workers and scaled back their international operations during the crisis, although many are now rehiring. Two U.K. banks, Northern Rock and Bradford & Bingley, were nationalized, and the British Government took significant shares in the Royal Bank of Scotland and Lloyds Banking Group. In November 2011, the U.K. government sold Northern Rock to Virgin Money. In spite of the damage caused by the financial crisis, London’s financial exports contribute greatly to the United Kingdom’s gross domestic product and will continue to do so. Over 1 million people in the U.K. work in financial services, nearly 4% of total U.K. employment. About one-third are employed in London. The U.K.’s financial services industry contributed £124 billion ($200 billion) to U.K. GDP in 2009, accounting for 10% of total economic output. London is a global leader in emissions trading, a center for Islamic banking, and home to the Alternative Investment Market (AIM).
Sources:CIA World Factbook (March 2012)
U.S. Dept. of State Country Background Notes ( March 2012)